Shaping macro economy in response to COVID-19 in Kenya : a responsible economic stimulus and a stable financial sector
Date
2022
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Publisher
Institute of Economic Affairs
Abstract
Kenya experienced overall macro stability and modest growth of 5.5% for the period 2017 to 2019. The onset of COVID 19 pandemic in March 2020 however subdued the economy owing to swift containment measures that were imposed to limit the spread of the pandemic. As a result, Kenya suffered its first recession in nearly two decades. The government responded fast by instituting a broad range of macroeconomic policy interventions. It launched the 8-Point Economic Stimulus Programme targeted towards building back a better and resilient economy. This policy was chosen to estimate the socio-economic effects of the stimulus. Using available evidence of fiscal multipliers, we came up with three scenarios: (i) untargeted total expansionary fiscal stimulus and (ii) targeted sectoral public spending and (iii) hypothetical reallocation to targeted sectoral with high multiplier effect. Results of the scenario building exercise highlight that fiscal stimulus could contribute to Kenya’s growth over the short-term, but the impact greatly improves if measures are targeted to sectors with higher multiplier effects. In medium to long term, focus on environment and green investment could result to higher socio-economic effects.
Description
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Policy Brief
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Keywords
FISCAL STIMULUS, MACROECONOMICS, COVID-19, ECONOMIC IMPLICATIONS, KENYA, SOUTH OF SAHARA